HMRC Attitude Towards Taxing of Fixed Term Savings Accounts

LincDing

My wife and I were under the impression that if one was to opt for a fixed term savings account where you opt to have interest paid at maturity then interest earned would from this account only be considered as income in the tax year when maturity occurs. We understand that  savings providers have a duty to report to HMRC that interest has been added to savings accounts for all customers every tax year, it appears that neither the savings providers/HMRC make any effort to explain/investigate where the ability to withdraw funds prior to maturity is not allowed, therefore we as the customer become liable for tax from interest earned in tax years when we have not  access to the income from savings. We thought we had diligently invested in fixed term savings over a variety of different terms ie 1 year to five years selecting interest paid at maturity to avoid exceeding PSA, only to find the HMRC are now taxing us on income from savings interest we can't access. It should be noted we are both retired and in receipt of occupational pensions, however one of these pensions is barely above £12,000 therefore we sought to take advantage of the additional HMRC £5,000 allowance for income from interest on savings.

Various articles on the internet seem to substantiate our original thinking that savings interest at maturity is not taxed until this point, but HMRC are having nothing of it!

 We are completely befuddled, has anybody got advice as to how to resolve this with HMRC?

Many thanks

eskbanker

If interest is only added at maturity then the provider shouldn't report it until then, but if it's added annually and only accessible at maturity then this has to be reported to HMRC each year (it shouldn't cause a tax liability though).

fuzzzzy

If you are completely sure that your interest is not accessible before the end of term maturity then I would either phone HMRC up (at 8am if you want to avoid a wait) or write them a letter.

Who are the providers of the fixed term accounts?

badmemory

I have found that my fixed term accounts with Halifax & Nationwide notify annually whatever the fixed term is & NS&I notify when you can access. I would actually prefer the annual notification as the other rules out the use of a 5 year term.

subjecttocontract

I seem to remember that someone posted a reply from HMRC about this a few weeks ago. It said something along the lines of.....if the account can be closed early or money withdrawn, even with a penalty, then they consider that the money is accessible.

Albermarle

There are many threads on the forum about this.

Most fixed term savings providers report the interest earned annually to HMRC, who have no idea of the terms of the account being reported. So they tax annually, even though this is against their own rules in some cases.

For many people this is an advantage as they can utilise annual personal allowances better, and most would be blissfully unaware of the situation anyway.

I think ( not 100% sure ) you can force the issue with HMRC, but good luck with that.

DRS1

As suggested above write to them explaining why you think the interest is not accessible until maturity. Send them the Ts&Cs of each bond as evidence. Quote the relevant clause in each set of Ts&Cs.

And in future only use NS&I for this sort of thing - everyone else reports interest annually.

intalex

The only consistent thing is that interest is reported to HMRC by the banks based on when it is credited (same criteria as when interest used to have basic rate tax deducted), and so the default option is that it becomes taxable based on when it's credited. And there is no standard process to get that corrected to what is indeed incorrect treatment. All the talk of accessibility (with penalty), optionality (to change where interest is paid and how often), etc are just loose debates, but the bottomline is that this whole matter is a grey area and so until the obvious solutions to this grey area are implemented, it is best to choose accounts according to the bit in bold above.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81919299#Comment_81919299

There are a small number of other providers who credit all interest at maturity, meaning it is only reported in the year of maturity. Moneyfactscompare provides this info in perhaps the most easily digestible format.

m_c_s

There is a clause in the T&Cs for most, if not all, fixed savers that state you can access the money in cases of financial hardship. So technically the money is never inaccessible.

When I spoke to HMRC a few years ago to check on an Atom Bank 5 year fixed saver they said that this clause is one of the main reasons why by default they treat the savings interest as potentially taxable when it is declared by the bank each year and regardless of the actual maturity of the saver.

The FCA have guidelines that allows this access to happen on the basis of what they call "treat customers fairly and support them through payment difficulties". So even if it is not in the T&Cs the FCA guidelines can be used to gain access to the money. Early release of the money in a fixed saver is usually at the bank's discretion and is not guaranteed but ofcourse HMRC see this as black and white and there is a possibility of the money being available and therefore never inaccessible.

One example I have heard is you can often get access to the money in a fixed saver if you are involuntary made redundant. Other examples include extreme illness or death.

LincDing

Thank you to all who have posted comments, your prompt assistance is much appreciated. We will have another try with HMRC, providing copies of T&Cs from each account.